ASSISTANT COMMISSIONER OF INCOME TAX Vs. NUCHEM INVESTMENTS P LTD
LAWS(IT)-1993-3-7
INCOME TAX APPELLATE TRIBUNAL
Decided on March 15,1993

Appellant
VERSUS
Respondents

JUDGEMENT

1 to 11. [These paras are not reproduced here as they involve minor issues.] - (1.) 12. The next grievance of the revenue relates to allowance of investment allowance on the machinery which was leased out. The claim was rejected on the ground that the assessee had not utilised its machinery for manufacture or production or an article or a thing. Therefore, it is not entitled for investment allowance. 13. When the matter came before the CIT (Appeals), the CIT (Appeals) following the decision of the Madras Bench of the Appellate Tribunal in the case of First Leasing Co. of lndia Ltd. v. ITO [1983] 3 ITD 808 (Mad.), deleted the addition and allowed investment allowance. 14. The learned Departmental Representative taken us through the Madras Bench decision in the case of First Leasing Co. of lndiaLtd. [supra) where the view has been taken that the investment allowance is allowable to the assessee who does not himself engage in the manufacture or production of article or things but leased it out on rent to those who utilise it for the said specified purpose. However, it was submitted that the observation in the case of Mahabir Cold Storage v. CIT [1991] 188 ITR 91 (SC) was not considered. Our attention was invited to the observations where the Hon'ble Supreme Court for instance has mentioned that where an assessee leases the asset to another person during the previous accounting year, the use of the plant and machinery is not for the business of the assessee for which the development allowances were accorded under Section 33(1) since the machinery was not wholly used by the assessee for his/its business during the previous accounting year. It was submitted that for claiming investment allowance the unit of ownership and user of the asset in the business of the assessee have to be established before investment allowance can be granted. Our attention was also invited to the decision of Calcutta High Court in the case of CIT v. S.P. Jaiswal Estates (P.) Ltd. [1992] 196 ITR 179 where the Hon'ble Calcutta High Court held that preparation of food in a hotel does not constitute manufacture or production of any article or thing. Therefore, the assessee running the hotel is not entitled to investment allowance under Section 32A. It was submitted that unity of ownership and user of the asset in the business of the assessee must be proved before investment allowance is granted. The lease is a kind of transfer and diversity of ownership coupled with user is an obstacle to grant investment allowance in a case where the plant & machinery is given on lease to some other party. It is true that liberal interpretation should be taken of the provision but one should not forget that if it defeat the very purpose, the same cannot be allowed. 15. The learned counsel for the assessee in reply placed reliance on the decision of Karnataka High Court in the case of CIT v. Shaan Finance (P.) Ltd. and it was submitted that the distinction has been drawn between the provision of Section 32A and that of Section 33 and after considering this, the Hon'ble Karnataka High Court has held that investment allowance is allowable where the machinery is leased to other party if the business of the assessee company is leasing the machinery on hire-purchase. 16. We have considered the rival submissions and have gone through the observation of the Hon'ble Supreme Court in the case of Mahabir Cold Storage (supra) the Hon'ble Supreme Court made this observation in connection with the claim of development rebate made by a firm in respect of newly reconstructed firm at a different place. The facts were that a firm PH, constituted of two partners having its head office at Calcutta and branch in Purnea. The business at Purnea was carried on in the name of Mahabir Cold Storage. The partners had taken a loan from P and Co., a private company, for erection of a cold storage plant and for running capital. Later, the company was taken as a partner in a new firm. The assessee company at Purnea comprising three partners obtained registration under the Income-tax Act and was assessed separately. The original firm continued the business at Calcutta. PH had installed new plant and machinery at Purnea but no development rebate was claimed. The assessee company at Purnea claimed development rebate. Both the ITO and the Appellate Asstt. Commissioner rejected the claim. When the matter came before the Supreme Court, the Supreme Court has held that when the unity of ownership and user of asset in the business were disrupted or a branch of an earlier business was taken over by a new firm which existed simultaneously with the other branches of the old business, the benefit of development rebate under Section 33(1) of the Income-tax Act, 1961, did not extend to either firm. While deciding the case for granting development rebate, that observation to which our attention was invited, had been made. It will be pertinent to mention here that the case before the Supreme Court related for grant of development rebate whereas the case before us related to a claim of investment allowance. The learned Departmental Representative invited our attention to the Circular No. 202 of July 5, 1976 also where it is mentioned that provisions of Sections 32A and 33 are in parimateria. But we find that this is not so because in the sub-clauses of Section 33, there is a specific reference to the assessee's business premises where the machinery is to be installed which is not in Section 32A. Secondly, the Circular is for the guidance of the departmental officers only. Regarding the observations of the Hon'ble Supreme Court, we would like to mention here that to our understanding the Apex Court has cited an example for instance of a case where the assessee owns plant and machinery and does not use the same for the purpose of its business rather leases the assets to another person. In that connection, the observation was made by the Hon'ble Supreme Court to which our attention is invited by the learned Departmental Representative. The facts of the case before the Hon'ble Supreme Court and the facts of the present case before us are distinguishable. In the case before us it is the business of the assessee to lease out the plant and machinery and earn income from that. Therefore, it is not a case where assessee owns a plant and machinery and has given it to third parry but a case where the assessee himself is running the business of leasing the plant and machinery. Therefore, observations of the Hon'ble Apex Court is not applicable to the facts of the present case. Similarly, in the case of S.P. Jaiswal Estates (P.) Ltd. (supra) the question was related to a hotel where the preparation of food was one of the activity of the hotel. In that context, it was held that preparation of food in hotel does not constitute production or manufacture of article or thing within the meaning of Section 32 of the Act. Therefore, no investment allowance is allowable. It is not the case here. We find that similar issue came before the Karnataka High Court in the case of Shaan Finance (P.) Ltd. [supra) and the Hon'ble Karnataka High Court has observed as under:- The main conditions to be satisfied as per Section 32A(1) and (2) are: (1) The subject-matter is to be owned by the assessee; (2) The subject-matter is wholly used for the purposes of the business of the assessee: and (3) Subject-matter should come under any of the enumerated categories, as per Section 32A(2). Machinery in the instant case is used in the business of the assessee because, business of the assessee is leasing out the machineries. Therefore, the further condition to be satisfied, is the condition stated in Sub-section (2) of Section 32A. Here, the relevant clause relied upon by the assessee is Clause (b)(iii) of Section 32A(2). The lessee i.e. the person who took the machinery on hire-purchase has installed it for his business of manufacturing any article or thing. Section 32A is a beneficial provision in a taxing statute and full effect has to be given to the language used by the Parliament. Provisions which provide for exemptions and deductions are usually read with the charging provision, because, exemptions and deductions are the inevitable concomitants of the subject charged with the tax. May be, burden is cast on the assessee to prove his case for deductions and exemptions; but this burden is on the practical aspect of working out the details; there is no rule of construction which says that if the language of a section providing for any exemption or deduction is not clear, the assessee cannot take advantage of it. The term "wholly' means'entirely" and not exclusively. The machinery in its entirety may be used by its owner and it is possible for another also to use it. Therefore, it cannot be said that in the instant case, machineries were not wholly used by the assessee by leasing them in the course of its business of leasing - CIT v. Hindustan Aluminium [1989] 176 ITR 206 (Cal.), Punjab National Bank v. CIT [1983] 141 ITR 886 (Delhi) and CIT v. Pandyan Bank Ltd. [1969] 71 ITR 707 (Mad.) relied on: Hansrqj Gordhandas v. H.H. Dave, Asstt. Collector of Central Excise and Customs and Ors. AIR 1970 SC 755 applied. As regard the question whether the machineries are to be installed in any industrial undertaking for the purpose of business of manufacture or production of any articles or thing, belonging to the assessee, some due is available as to the Legislature's intention by comparing Section 32A(2B) with Section 33(1)(b)(B)(ii) and (iii). In the latter two sub-clauses (of Section 33) there is a specific reference to the assessee's business premises where the machinery is to be installed. Similarly, the language of Sub-clause (a) of Section 32A(2) stands in clear contrast to the language used in its Sub-clause (b). Each machinery installed in a particular manner is the cause for the investment allowance to be granted to the person who owns the machinery, provided, the owner uses it in its entirety in his business. The benefit is given with reference to the actual user of the machinery, though the benefit is given with reference to the actual User of the machinery, exploit the machinery, (sic) himself, for manufacturing or producing any article. Such a situation is not entirely unknown in the field of taxation. If the object behind Section 32A is understood as to encourage industrial activities and investment in capital goods to facilitate industrial developments, the provision would certainly bear the meaning attributed to it. Therefore, in respect of the machineries owned by the assessee, but leased to third parties and used by them for the manufacture of article or thing investment allowance was allowable. In this observation it is clear that the Hon'ble Karnataka High Court has drawn a distinction as under:- In the later two sub-clauses (of Section 33) there is a specific reference to the assessee's business premises where the machinery is to be installed. Similarly, the language of Sub-clause (a) of Section 32A(2) stands in clear contrast to the language used in its Sub-clause (b). Each machinery installed in a particular manner is the cause for the investment allowance, to be granted to the persqn who owns the machinery, provided, the owner uses it in its entirety in his business. In view of this, we are of the opinion that the case of the assessee is squarely covered by the decision of Karnataka High Court and the decision of the Special Bench in the case of First Leasing Co. of India Ltd. (supra). Therefore, investment allowance was rightly allowed by the CIT (Appeal). We do not find any substance in this ground. The ground is hereby rejected. 17. In the result, the assessee's appeal is partly allowed whereas the revenue's appeal is dismissed.;


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